IMF cuts India's 2012 growth forecast to 4.5%

The International Monetary Fund (IMF) on Wednesday lowered its projections for India’s economic growth to 4.5 per cent for the 2012 calendar year from its earlier estimate of 4.9 per cent.

However, it felt the economy would grow at a faster pace in 2013, at 5.9 per cent, slightly lower than the six per cent estimated earlier.

In its latest update on the World Economic Outlook, the IMF said it further expected India's economic growth to gather pace and stand at 6.4 per cent in 2014, the same as estimated in its October update.

In that update, it had pegged India’s economic growth at 4.9 per cent for 2012, as much as 1.3 percentage points lower than the 6.2 per cent in its July world economic outlook. Now comes the further cut.

It should be noted that the Fund estimates economic growth on the basis of gross domestic product (GDP) at market prices (inclusive of indirect taxes and exclusive of subsidies), while India officially calculates it on the basis of GDP at factor cost (excluding indirect taxes and including subsidies).

The higher growth of GDP at market prices relative to the growth of GDP at factor cost has occurred in quarters which had a positive growth of net indirect taxes and vice versa.

The IMF report said supply bottlenecks and policy uncertainty had hampered growth in some economies, India being one of these.

The government has been taking reform measures actively from September 2012, when it liberalised foreign direct investment in retailing, aviation and power trading exchanges. This was followed by setting up a Cabinet Committee on Investment to hasten stuck mega infrastructure projects, initiating a new investment policy in urea and getting a Bill through Parliament to allow the Reserve Bank to come out with final norms on banking licences.

Even so, some economists believed the IMF projections were a bit optimistic for the year 2013. Anis Chakravarti, an economist with Deloitte, said the economy was unlikely to grow at the IMF’s October 2012 projection of six per cent. “The growth has been sluggish and it is unlikely that we are going to grow fast enough to reach six per cent in the near future. It makes sense for the IMF to revise its India GDP growth projection for 2013 to 5.9 per cent, though the economy is more likely to grow at 5.6 to 5.7 percent this year,” he said.